How to open a US brokerage account

By Douglas Goldstein, CFP®, Cross-Border Financial Advisor

Who needs a U.S. brokerage account?

From all of the calls and emails I get from around the world, it seems to me that a lot of people want to have a U.S. brokerage account. If you’re not sure of the benefits of having a U.S. brokerage account if you live abroad, read the whitepaper, “6 Reasons You Should Have a U.S. Brokerage Account.” Click here to download the whitepaper. However, the article below is a “how to,” and it’s meant to help you open a U.S. brokerage account quickly and easily.

This article will help you if…

If you are a U.S. citizen living outside the United States, you may have found that your U.S. bank or brokerage firm has asked you to leave. One of the most common sources of new business for me is when someone walks into my office with a letter from a major U.S. firm and he says something like, “Doug, I’ve had my account with them for over 20 years, and now they are saying that I have to close it within 30 days!”

If you are a non-U.S. citizen who wants to benefit from having a U.S. brokerage account, I’ll show you some important facts you should know.

If you want to own U.S. securities like stocks or bonds, or if you want to own offshore mutual funds, but your non-U.S. bank/brokerage firm refuses to help you. Thousands of banks and investment companies around the world have stopped doing business with Americans because they are afraid of the new FATCA regulations, which stipulate that the United States may withhold 30% of their earnings if they fail to report all of the information about the U.S. clients to the IRS. A bank in England or Germany, for example, with no ties to the United States, now has to send reports about their clients to the United States Government! Many of them feel that the IRS has overstepped its boundaries and are refusing to work with America.

Don’t read this article if…

If you’re a money launderer, terrorist, or other sort of bad guy looking to clean up your funds through a U.S. brokerage account, forget it! The compliance officers are well trained to spot you guys and stop you, so don’t bother reading any further. This article is meant for normal folks who want to build up savings for retirement and perhaps create a legacy for future generations, and who intend to follow all applicable laws.

10 Steps to Opening a U.S. Brokerage Account for Non-U.S. Residents

Contact a U.S. brokerage firm that specifically focuses on people outside the United States. Though many investment companies won’t work with U.S. expats or NRA’s (non-resident aliens), many will. If a company seems unfriendly toward you because you have a non-U.S. address, keep looking until you find a company that will be happy to open a U.S. brokerage account for you, even though your address is not within the borders of the fifty States. (Though this article is meant to be educational, if you’d like to see what my company can do for you, click here.)

Be prepared to clearly identify yourself. One of the things that we must confirm about our clients is their identity. The best way for you to do this is to provide a copy of your passport or any other government-issued identification. We’ll often ask for a copy of a utility bill sent to you at your home address. This way we can confirm that the address you provide for yourself is where you actually live. If you want to try to hide your identity by opening an account in the name of offshore trusts with puppet trustees who own corporations in other jurisdictions, forget it. That’s not to say that offshore trusts are off limits; quite the contrary! Many of our clients operate their finances through legal structures rather than directly in their own name, and that’s fine. The problem arises when you try to hide who you really are.

Clearly identify your citizenship. One common mistake that people make when opening an account is not understanding whether they must sign a W-8 or W-9 form. These forms tell the brokerage firm whether you’re opening the account as a U.S. citizen or as a non-U.S. citizen. If you have U.S. citizenship but live in another country, you still must sign a W-9.

Understand what services you are getting. An important distinction to understand is that when you open an account, you are normally signing up for two distinct services: 1. Advice, 2. Custody/clearing. The advice should normally come from someone who is licensed both in the United States and outside the U.S., too. Understanding the special needs and tax considerations of folks who live beyond the American borders is the purview of an elite type of cross-border specialist. Don’t just count on your old accountant or financial advisor to understand the nuances of an overseas lifestyle. The custody and clearing should come from a major brokerage firm so that you get a full range of services. Those services include, first and foremost, insuring your account. The most common type of insurance would be through the SIPC (Securities Investor Protection Corporation), and then normally there would be more, third-party insurance above and beyond that. Other services would include:

access to world markets,

currency trading,

a selection of funds and money managers, and

easy access to your money through a Visa/Mastercard and checkbook.

Ask these 4 questions. Along with the “standard” questions you might want to ask when selecting an advisor, be sure to ask:

What experience do you have in dealing with cross-border clients?

Do you provide cross-border financial planning as well as investment services?

Can you set me up with an actual brokerage account, or do I have to do that on my own?

Will the brokerage account be in my own name, or are my assets combined with other people’s?

Meet the advisor. Depending on your locale, you may or may not meet with the advisor. Though I prefer to meet all of my new clients, I understand it’s not always possible. In those cases, I set up “phone meetings” or Skype calls in which I’ll spend time all the time needed to get to know the client as we are getting started. Though there’s nothing like a face-to-face meeting, a video conference is a pretty good substitute. Ask the advisor you are considering if he has a policy about this, and make sure it suits your situation.

Sign the paperwork and fund the account. Signing paperwork normally doesn’t take much time, except if you have to mail forms back and forth. Once that’s completed, the advisor should open your account and then it’s up to you to fund it. The best way to fund the account is to wire money from your current account in your name to the new account, which is also in your name. Compliance officers who oversee money transfers always prefer to see money moving to and from “same name” accounts. Never try to fund accounts with cash or travelers’ checks since those are huge signs of money laundering. Also, don’t plan to deposit funds into the account and then send it out immediately. That’s also an indication that the account is not really meant for investment purposes, and the compliance team will begin investigating it. If they suspect any sort of foul play, they have the right to freeze the account.

Tell the advisor if you have any special needs or requests. Though I’ve noted a number of situations where compliance officers may flag an account as a potential problem, that doesn’t mean that people don’t have special situations sometimes. If you’re involved in a business deal or if you’re getting divorced, for example, you might have certain requirements in handling your money. Make sure you bring those issues up before opening the account and ask the advisor to check with his legal team to make sure that everyone is on the same page. The best way to insure smooth operation of your account is to have open and honest communication from the outset.

How to choose the right investments. At this point, you’ve interviewed the advisor, opened the account, and funded it, too. What’s next? Explain your goals to your advisor, as well as your risk tolerance. Hopefully he will ask you a lot of questions to help you develop an investment strategy that makes sense for your situation. If you feel pressured to buy something, then beware of the advisor. Investment professionals should spend their time educating you about your choices, not pushing you to invest in something.

Monitor the account. Using the online account lookup service that the brokerage firm should provide, keep a close eye on your account. Even though you may not trade regularly, it’s good financial hygiene to keep track of what’s going on with your money. Ultimately, you are the one responsible for your funds, so be sure to watch at least once a month.

For over twenty years, I’ve been helping people who live outside of the United States open U.S. brokerage accounts. In the past few years, I’ve watched how the regulatory environment has made it more difficult for some companies to handle cross-border clients. However, I’ve also found that there are so many opportunities for folks who have U.S. brokerage accounts to invest in such a wide variety of securities, that I think it’s critical for many people to handle their investments through a U.S. brokerage account.

To see a free, short video called, “U.S. Brokerage Accounts for Non U.S. Residents,” click here.

And if you have any specific questions or would like some help getting set up with your own U.S. brokerage account or IRA account, feel free to get in touch with me at www.profile-financial.com.